Thursday, April 28, 2011

I’m thrilled to report that while in Singapore last week, I had the great honor of interviewing Jim Rogers in person. He was extremely kind in hosting me and entertaining my questions, and I’m excited to be able to share our fun 45-minute chat with you here.

As you may know, I’m a longtime reader and fan of Jim Rogers - and one of my constant frustrations with mainstream financial outlets is that, while they frequently interview Rogers, they lob too many idiotic questions his way, like “What should the Fed do?”

So I hope that you find our discussion around his current world and financial outlook insightful, especially if you’ve been following his work as closely as I have.

All of his books are excellent, as you probably know - three in particular had quite profound effects on my thinking about investing, the world, and life in general. If you haven’t yet read all of these, I’d highly recommend you pick up a copy of his investing classics:

Jim Rogers was a bull on China decades before it became fashionable, and he’s still wildly optimistic about China’s future.

“I believe China’s going to become the next great nation in the world,” he says.

“People call the Chinese ‘communist’...California and Massachusettes are more communist than China,” he remarked with a grin.

“The Chinese communist party is very smart - as are the leaders here in Singapore. There is a thorough application process to apply to run for office - all applicants are well vetted.” He says it’s quite rigorous, like “applying to Princeton” and added that “a guy like Obama would never have been able to run here (Singapore).”

Rogers has driven across China three times, and has seen much of the country’s evolution from the ground. He’s been enthusiastic about China for some time now - at least since his Adventure Capitalist trip (cerca 2000). Anyone who’s invested alongside his long-time bullish views on China has seen very handsome returns.

He says that according to local legend, Singapore was a role model for China’s development. Singapore has evolved very rapidly over the past four decades, from a Southeast Asia backwater in the 1960’s, into one of the most prosperous countries in the world today.

“The rumor is that Deng Xioping visited here (Singapore) in 1978 - when he saw what was going on, he returned to China, and started to open the country up,” Rogers told me. “In fact, if you ask some people here, they’ll say the Chinese are still keeping a close eye on what’s going on here.”

An interesting side play he likes for the years and decades ahead is Chinese tourism.

“The Chinese have not been able to travel for the last 300 years. Now they can - and they are going to flood the world with tourism for years to come,” he says.

Chinese tourists should have a lot of purchasing power from a strong currency, if Rogers is right. He cites the Chinese renminbi as one of his favorite picks right now, and believes it’s about as close to a sure thing as you can get.

“Here in Singapore, they've allowed their currency rise to mitigate inflation. I expect the Chinese will eventually have to do the same thing.”

“You’re better off cutting growth in advance, than allowing inflation to get out of control. If growth drops to 3%, who cares? That’s better than letting inflation get out of control, because once it does, it’s very tough to reign in.”

"Then you have to incur a recession or worse to control inflation."

I asked if inflation is really running around 5% as reported in China and surrounding Asia.

“Who knows - but at least they admit they have inflation! They’re not trying to deny its existence like the US,” he quipped.

He blames the United States, and Japan to a lesser extent, for “printing money like crazy and exporting inflation to the rest of the world.”

Commodities Should Remain Hot

“Most of my portfolio is in commodities, and currencies,” he shared. “I expect to make money in commodities because, if demand continues to rise, that is bullish for commodities.”

But what if we see a repeat of the financial collapse of 2008?

“If demand collapses, I anticipate the central banks of the world will print more money, and that will then cause commodities to rise,” he counters.

Agriculture is still his favorite, thanks to supply constraints that are nowhere close to being solved - including a lack of farmers.

“The average farmer in the United States is 57 years old,” Rogers shared (providing me with yet another “How the heck did he know that offhand?” moment).

“Who’s going to farm the land 10 years from now? These guys will be 67...if they’re still around. And nobody is graduating with farming degrees today.”

“There are just not enough farmers in the world. There are vast stretches of empty land in Japan, believe it or not - with nobody to farm them.”

He thinks this commodity bull market could continue to rock and roll for some time because “little or no supply has come on line yet.” He points out that the commodity sector was starting to attract attention pre-2008, as its bull run began around 1999, but the 2008 financial crisis knocked a lot of potential new supply offline. Which of course sets the stage for further price increases.

Bearish on the US and UK - Crisis Soon?

“The US has peaked in relative power, if not absolute power as well,” Rogers says. He believes the US is now on a post-empire downward trajectory of sorts, analogous to the UK last century.

“Around 1918, the UK went into decline. By the mid 1970’s, it was bankrupt.”

“Starting in 1979, it experienced a bounceback rally of sorts - thanks to their oil fields in the North Sea. Most people give Maggie Thatcher credit for their comeback, but the real white knight for the UK was the North Sea oil discovery,” he said.

“You give me the largest oil field in the world, and I’ll show you a good time too,” Rogers remarked with a grin.

“But the US would need 4 or 5 North Sea oil fields to save the current situation,” he says.

Why so many?

“Because the Federal debt is unpayable.” The financial profligacy of the United States disturbs Rogers quite a bit - he believes we’ve reached a point of no return, and thinks another crisis could start as early as this fall.

“Foreigners are already starting to get cold feet about investing in the US,” he said, citing the fact that some Swiss banks are no longer buying any US shares.

I asked if he thought the current system of government in the US was ultimately salvageable - he paused for a bit to think, and said with some level of remorse: “I don’t think so, unfortunately. Not without some level of serious system shock or failure.”

“Plato wrote that the natural progression of government is from dictatorship, to oligarchy, to democracy, to chaos. So we may be on the track from democracy to chaos in the US. We’d need a serious shock to shake people up.”

With next year being an election year, he expects that the powers that be in the US will do whatever it takes to keep the economy looking good. “Nobody wants to be held responsible for an economic mess,” he told me , expecting that the US government will continue to paper over their problems, and perhaps even accelerate their efforts to do so.

Actions to Consider - Investing and Personal

And with this upbeat outlook for Americans and other Westerners, what personal actions should we take to protect our portfolios - not to mention our savings, and most importantly, our personal freedom?

As discussed, commodities are still Rogers’ favorite place to be - especially agriculture and energy, because the supply bottlenecks that were in place at the start of this commodity bull market have barely begun to be addressed. And it can take 5-10 years or more for supply to come online, he pointed out, citing again the 10-year delay between the North Sea oil discovery and its becoming a productive oil field.

Fforeign currencies are his preferable hedge against further anticipated US dollar weakness - with his favorite being the Chinese renminbi.

But what if things get really sticky in the US? I asked him his thoughts on protecting assets from potential “patriotic” confiscation by the US government (if Uncle Sam, say, decides he needs a little help in paying off his debts).

“Foreign exchange controls are coming to the US. The UK had exchange controls by 1939, and they remained in place until Thatcher repealed them,” he said.

“They never work. But politicians always resort to them.”

“So, while it’s still legal, and ethical, to do so, I would recommend diversifying your money outside of the US.”

(I took this as a personal homework assignment, as later that day I walked into a Singapore bank , with only my US passport in hand, and asked if I could open up an account. No dice, they said - I’d need to show a work permit. But I did manage to stir up things with the bank teller a bit - you could tell she was not anxious to open up a foreign bank account for an American.)

“To my knowledge, no country to date has expropriated money from overseas that was already there before exchange controls were instituted - but the US is always an exception,” Rogers remarked regarding the safety of money outside of US soil.

Having recently read Barton Biggs’ Wealth, War and Wisdom - an excellent study of wealth preservation during World War II - I asked whether a business would be harder to confiscate than, say, a lump of cash sitting in a foreign bank account.

“I don’t know what to tell you,” Rogers advised me, “except to move to Asia, and teach your children Mandarin.”

“Teach them to farm, too.”

He has certainly followed his own advice - he now lives in Singapore with his wife and two daughters. And his girls, ages 3 and 7, are incredibly cute blond girls who amuse and floor the locals (Singapore is 70% Chinese) with their fluent Mandarin.

But what about my wife’s job at Intel in California?

“Your wife should leave Intel...and take up farming,” he said with a grin.

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